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Leveraged Management Buy-Ins: Role of Investors, Means of Exit, and the Predictive Powers of the Financial Markets

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Abstract

In this paper I empirically test whether the involvement of a special type of investors can help improve the performance of targets within leveraged management buy-in transactions. I also test the market's ability in discriminating between those management buy-in targets that fail or succeed subsequent to going private and find that the markets are in fact capable of predicting failures and successes at the time of the announcement of these bids. The results reveal that the involvement of LBO-Associations improves the chances of post-transaction success, and that MBIs that subsequently fail do not underperform their industrial peers prior to the bid, they were simply over-priced by the bidders. The bidding teams who bought into these failing MBIs, those which the markets deemed unsuitable, were simply faced with the winner's curse and had over-estimated their abilities in bringing about substantial improvements within the management of these targets.

Suggested Citation

  • Shojai, Shahin, 2004. "Leveraged Management Buy-Ins: Role of Investors, Means of Exit, and the Predictive Powers of the Financial Markets," Journal of Financial Transformation, Capco Institute, vol. 10, pages 129-141.
    • Handle: RePEc:ris:jofitr:0002
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    Keywords

    LBOs; MBIs; MBOs; Levereged Buyouts; Management Buy-ins; Merger and Acquisitions; Market Efficiency; Analysts Predictions;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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